1. Field of the Invention
This invention relates generally to the computerized accounting systems and methods, and more particularly to payroll processing systems, methods and related software products.
2. Background of the Invention
Payroll is the process by which an employer determines and distributes wages to employees, including accounting for various types of withholdings such as taxes, insurance, and credits, such as reimbursements and bonuses. Due to the complexity of computing the appropriate wages, withholdings, and credits for employees, many employers hire third party payroll services to prepare the payroll for the company. Conventional payroll services are characterized by the following aspects:
i. Payroll data (employee wages, benefits, deductions, taxes, etc.) is owned by the payroll service and stored on a backend server system that is not directly accessible to the employer (payroll service customer). This is true even though the payroll data describes the details of the employer""s particular payroll needs and employees.
ii. Employee hours, bonuses, changes and other exceptions for a given pay period are usually phoned or faxed from the employer to the payroll service. It is from this information that the payroll from the pay period is generated. Often restrictions apply to when an employer is allowed to contact the payroll service, and in some instances, the payroll service calls the employer at a prearranged time to obtain this information. This type of arrangement requires the employer to comply with the demands of the payroll service, and reduces the convenience and flexibility of the payroll service to the employer. Some payroll services provide client software that allows the employer to electronically transmit this same data to the payroll service.
iii. The payroll service executes payroll (net checks calculated, tax withholding amounts, deductions, etc.) on a fixed, predetermined schedule. The backend server at the payroll service enforces all tax and payroll compliance rules.
iv. Based on its own calculations, the payroll service backend server system initiates direct deposit payments and regular tax payments and tax information filings to local, state and federal tax agencies.
v. The payroll service sends the printed payroll checks (or deposit slips) either to the employer to distribute, or directly to the employees.
vi. The payroll service sends printed reports to the employer which the employer may review and must enter into their accounting system in order to properly reflect the accounting impact of the payroll.
vii. The payroll services provide tax filing information to the appropriate local, state, and federal tax agencies regarding the various amounts of wages and tax withholdings for the paid employees.
viii. When the employer or employee notices an error on one of the payroll checks, the employer calls the payroll service and arranges for the problem to be fixed in the next payroll run (usually at least a week or two later).
These aspects of the conventional payroll service relegate the employer to a minor role in the preparation of its own employees"" payroll. To obtain the benefit of the payroll service, the employer must give up substantial flexibility in terms of interacting with the payroll service and control over the details of the payroll preparation. In addition, the employer must pay substantial fees for this payroll service.
This loss of control and convenience is at odds with current trends in computerization of business operations. In particular, most businesses today use accounting software to manage their financial records, such as accounts receivable and accounts payable. Further, these companies also maintain most of their employee data on computer, including data pertinent to the payroll calculations. Yet because of the complexity of payroll, even companies who otherwise manage all of their accounting turn to payroll services to handle payroll. From the perspective of the employer, it would be desirable to handle payroll as yet another part of its internal accountingxe2x80x94thereby giving it more control over how and when payroll is processed.
Accordingly, it is desirable to provide computer-based method and system, and software products, that integrate payroll functionality into a company""s overall accounting processes, and in particular, give the company direct control of the input and management of employee information and the execution of payroll processing.
The present invention overcomes the limitations of conventional approaches to payroll processing by providing an online, client-server payroll processing architecture in which certain payroll functionality is divided between a client computer managed by the employer and a payroll computer system managed by a payroll service. The division of functionality gives each party control and responsibility of those aspects of payroll which it can best implement and reduces the risk of error or failure to report payroll.
In one aspect this division of payroll functionality is as follows:
Set up and maintenance of company and employees"" payroll setup information, including employee compensation, pay periods, deductions, tax status;
Calculation of payroll taxes (gross to net calculation), and company tax liabilities arising from payroll;
Paying of employees with printed checks, and deposit advice notice; and
Record keeping for payroll.
Movement of direct deposit funds by ACH, and paying of employees by direct deposit;
Payment of federal and state tax liabilities;
Filing of federal and state tax forms; and
Archiving of payroll backup records for the employer.
This division of functionality and responsibility advantageously gives the employer managing control of the client computer control over all of the significant details of payroll processing, just as it would if it were doing payroll by itself, but further gives it the advantages of having a payroll service complete the more complicated aspects of direct deposits, tax payments and tax filings, which many employers find difficult to master. Likewise, the payroll service managing the payroll computer system obtains the advantages of not having to setup and maintain employee-specific data-the most costly and inefficient part of payroll processingxe2x80x94while retaining the responsibilities it is best suited to handle, specifically the processing of ACH transactions and tax filings.
In accordance with the present invention, the client computer maintains a database of employee payroll setup information, such as each employee""s wage or salary rate, tax status, benefits, deductions, and the like. This information is preferably maintained by the accounting and payroll software product, and is accessible directly from within this application, as opposed to requiring the use of different and unrelated applications for performing accounting and payroll.
This feature is advantageous because the employer now owns the payroll data, instead of a conventional payroll service. This gives the employer direct access to the payroll data, instead of indirect (and inconvenient) access through a conventional payroll service. The payroll service retains copies of the payroll data that is transmitted to it, and can help restore lost or damaged data, but the primary payroll data source is a data file stored on the client computer by the employer. A further advantage is that the employer can process payroll even if the payroll service computer is temporarily down, off-line or otherwise unavailable. Yet another advantage is that the employer can generate various types of payroll management reports at any time, without having to pay additional fees to its payroll service, or wait for such reports to be processed.
For a particular pay period, the employer enters pay period hours, bonuses, changes and other exceptions for each employee directly into the local payroll data file at his or her convenience. This is advantageous because the employer is no longer limited to providing payroll information to the payroll service at the discretion of the payroll service. This feature provides the employer with flexibility to do payroll whenever it wants with fewer data entry errors. The employer then executes payroll locally on the client computer using a combined accounting and payroll software product. The accounting and payroll software calculates for each employee the correct paycheck amount, taking into account the the employee""s payroll setup information, current payroll data, and the appropriate tax and payroll compliance rules. Because the payroll is done on the client computer, the employer""s accounting data and all financial reporting are up to date as of the creation of the payroll with no further input or reconciliation required by the employer. A further advantage to the employer is that the payroll service and payroll computer system maintains and delivers to the client computer up-to-date tax table information, which is provided to the client computer to ensure the accuracy of its payroll calculations.
When the accounting and payroll software is finished with the payroll calculation, the employer may review the paychecks for accuracy. Since the employer is able to review paychecks before the payroll service prints them, the employer is able to catch and correct errors before transmitting the payroll instead of waiting for the next pay cycle, as in conventional systems.
Once the employer is satisfied with the payroll, the employer prints paychecks for those employees without direct deposit, and deposit slips for those employees that do, from the accounting and payroll software product on a local printer. The employer distributes to the employees the printed checks and deposit slips. This is advantageous because the employees efficiently and quickly receive their paychecks/deposits, without requiring the intervention of the payroll service.
The employer also transmits the calculated payroll information including the appropriate wages, tax, deduction information, and the like to the payroll service for each employee. This transfer is preferably effected directly from the accounting and payroll software product.
The payroll service maintains a payroll computer system that receives the transmitted payroll information. Based on the transmitted payroll information and its own local store of payment and tax filing deadlines, the payroll computer system initiates direct deposit payments and regular payments and tax filings to local, state and federal tax agencies. Ideally, the payroll computer system does not compute the payroll information on its own since this would duplicate processing that has already been accomplished on the client computer. The payroll computer system also transmits back to the client computer confirmation that the deposits and payments have been made, and fee information charging the employer for preparing the payroll in this manner. This transmitted information is received by the accounting and payroll software, which updates its payroll status information, and further updates its transaction data to deduct the fee charged by the payroll service from the employer""s financial account. The payroll computer system further stores a backup of the payroll data for the client computer. This enables it to restore any missing payroll data should the client computer""s local store of this information become corrupted. The payroll computer system also periodically makes federal and state tax payments on behalf of the employer, and makes periodic (e.g., quarterly and year end) tax fillings (e.g., Federal Form 940 and 941).